Pimco has become the first investment firm to respond to the UK’s radical reforms of the pensions market, with a new fund launching today.

Pimco’s UK Retirement Strategy, actively managed by UK portfolio management head Mike Amey, is a multi-asset fixed-income portfolio pitched at pension schemes and individual savers looking to take advantage of the new freedoms available under Chancellor George Osborne’s reforms, announced in March.

Under current pension tax rules, UK savers are incentivised to buy annuities at retirement – these are insurance contracts that promise a guaranteed income for life. As a result, most pension schemes invest older members’ money passively in long-dated UK gilts, whose prices move similarly to annuities.

However, following the Budget changes, members may choose other retirement options, such as post-retirement investment funds or taking their pots as cash. Pimco’s new fund aims to produce a return compatible with any of these choices. This will be a compromise between trying to produce a regular retirement income and preserving the portfolio’s cash value.

To do this, Pimco will invest in a wider range of fixed-income assets, including short-dated bonds, credit and asset-backed securities. It will hedge against the risk of interest-rate rises using an options strategy, Amey said.

The strategy will cost 40 basis points, or 0.4% of assets to manage – more expensive than a passive bond allocation but well within the government’s proposed pensions fee cap of 0.75%.

Pimco is one of several asset managers attempting to crack the UK’s £200 billion-plus defined contribution pensions market, which is expected to grow as the government’s programme to enrol all workers into pensions rolls out over the coming years.

This market is dominated by a few big players, including the in-house investment managers of insurers Legal & General and Standard Life, as well as standalone fund managers such as BlackRock and Schroders.

Pimco, ranked as a third-tier player by market analyst Spence Johnson, in a market where the 12 first-tier firms control 88% of assets, faces a challenge.

Will Allport, Pimco’s business development manager for DC schemes, said further regulatory reforms of the DC market, which will soon oblige insurers to bring in external oversight of investments for their pension businesses, could help Pimco break in.